With inflation at its highest since 2009 and economic growth evaporating, many households are walking a financial tightrope.
However, the impact isn’t necessary sudden or obvious. Recent research from the Vulnerability Registration Service has found more than one in three people in the UK consider themselves financially vulnerable.
Just under one in three men (29%) consider themselves financially vulnerable, while the figure for women is even higher at 38%.
There are potential signs of vulnerability among clients, but often it’s up to the adviser to read the signals. Here are three issues that have become major problems during the pandemic.
1. Contribution dropouts
A client who suddenly or surreptitiously decides to stop contributing to areas of their wealth growth journey should throw up significant red flags.
Some 300,000 people have become ‘under-pensioned’ during the pandemic according to recent research from Now Pensions and the Pensions Policy Institute. The majority of this is down to loss of income, change of job status, or other financial strains.
Perhaps one of the clearest signals that a client may be becoming vulnerable is if commitments to save and make regular contributions to ISAs, pensions or other investments suddenly drop off, or stop one by one over months. This suggests they may have had an income shock or are rooting around for extra cash to pay bills. It could also point to an emotional issue.
But not only will it harm their long-term financial prospects, but it can lead to dropping off the advice radar completely, which could undo carefully laid plans.
Speaking to clients who might be exhibiting signs of financial distress is of course, really important. Not only will you keep them focused on their goals, but you could provide much needed counsel if they are in financial – or emotional – turmoil.
2. Drawdown advice decline
Pension holders are increasingly failing to look for advice when entering drawdown. The latest figures from the Financial Conduct Authority (FCA) show advised drawdown sales to have steadily fallen over 2020/21.
58% of retirees took advice on moving to drawdown while more than one in three (32%) in the first quarter of this year decided to go down the unadvised route.
Obviously pot size matters as many with smaller pots feel it unnecessary to seek advice. But according to the FCA data as many as 31% of pension pots between £50,000 and £99,000 went into drawdown unadvised.
The reasons why people choose to avoid taking advice with drawdown are complex, but the need for it is pressing. The fact that so many are falling through the advice gap here should be of grave concern.
Deciding what to do with a pension can be one of the most complex later life financial decisions a person takes.
Not only is fraud a risk at this point but mistakes can have implications for income, growth, and tax status of the money.
When it comes to vulnerability and financial resilience there is no worse nub issue than fraud. And it has become a big problem during the pandemic.
The UK has variously been described as the fraud capital of the world. In September UK Finance published stark figures, with £754 million stolen from brits in the first half of 2021 alone. The situation was so bad it left the banking trade body describing the issue as a ‘national security threat’.
All that said – vulnerable clients will be more susceptible than any to financial scams and fraud. Talking to them about some of the clear indications that something may be a scam is important.
Making sure they have in mind to speak to you before acting on any kind of ‘offer’ or ‘investment’ is essential as an adviser is the best form of gatekeeper. Family and friends might help but ultimately, they can be fooled too.